Most who want to get rich or retire wealthy... have got it wrong

Hodgie · 12 February 2015

Value Collector said:
Not sure if I agree with that, a highly skilled investor can generate high returns, that could match or beat a trader.

Traders claiming to get super high returns are often using leveraged instruments, if you factor in using leverage in an investment operation, If that operation goes well the returns will be quite remarkable.

let me give you an example, say an investor has $20,000 to invest. and he wants to leverage his position over two stocks he is comfortable with, we will use 2 stocks I have been involved with in the last 3 years CBA and CZZ (capilano honey).

Say he takes the full $20,000 puts it into CBA 3years ago at $45 / share, he then uses the CBA as collateral on a margin loan and puts $16,000 into Capilano, the CBA dividend more than covers the interest.

After 3 years his CBA has doubled to $92.00 / share, and capilano has gone from $2 to $9.20 + capilano dividends.

CBA- $40,000
CZZ- $73,600
total- $113,000

that's a 565% return in three years and that's not including the surplus dividends and franking credits, on a basic set and forget leveraged investment operation. He could have also built in a few option positions along the way to increase this return also.

Also this positions profits were not taxable along the way until he sells, and when he does sell, he gets a 50% capital gains tax discount.

It was previously mentioned by some (including yourself) that the average investor would be better off just going in an index fund so I think for the purposes of the above comparison you would need to use index returns rather than that of CBA and CZZ.

I'm not necessarily disagreeing with anything you have said, but based on the "average" investor, market returns seem more appropriate.

Of course when you start using a "Highly Skilled Investor" as a benchmark the sky is going to be the limit, as with a "Highly Skilled Trader"

ThingyMajiggy · 12 February 2015

Value Collector said:
Not sure if I agree with that, a highly skilled investor can generate high returns, that could match or beat a trader.

Traders claiming to get super high returns are often using leveraged instruments, if you factor in using leverage in an investment operation, If that operation goes well the returns will be quite remarkable.

let me give you an example, say an investor has $20,000 to invest. and he wants to leverage his position over two stocks he is comfortable with, we will use 2 stocks I have been involved with in the last 3 years CBA and CZZ (capilano honey).

Say he takes the full $20,000 puts it into CBA 3years ago at $45 / share, he then uses the CBA as collateral on a margin loan and puts $16,000 into Capilano, the CBA dividend more than covers the interest.

After 3 years his CBA has doubled to $92.00 / share, and capilano has gone from $2 to $9.20 + capilano dividends.

CBA- $40,000
CZZ- $73,600
total- $113,000

that's a 565% return in three years and that's not including the surplus dividends and franking credits, on a basic set and forget leveraged investment operation. He could have also built in a few option positions along the way to increase this return also.

Also this positions profits were not taxable along the way until he sells, and when he does sell, he gets a 50% capital gains tax discount.

Might just be a technicality but a lot of those who are saying investing can take it to trading, always seem to refer to a trade that one could have taken X years ago, I think this is another advantage to trading, what if that trade 3 years ago didn't work, if CBA didn't double? What would you do now today if you had a trader vs investor challenge? With trading you get multiple chances a day to dig yourself out of a hole(if you get into one), don't have to wait weeks/months/years to find out what the result is before you pull the plug on it and look for something else. I think trading is better bang for buck, especially index futures like a few of us trade here, you know right now whether it's going to work and can then still make a considerable sum even if you start the day bad or whatever the case may be.

That being said I think it would be best to do a bit of both, none of this trading OR investing competition.

IMO

Newt · 12 February 2015

I'll look forward to check crafts update to the PVFCF thread.

These types of threads shared by a very helpful minority of frank ASF members are the equivalent of reading one of the Market Wizards books in some ways. Fascinating insights into investments methodologies fine tuned in the furnace of real life trading/investing. You try to copy at your own risk, but never know when something will resonate with your ego/personality/style.

Value Collector · 12 February 2015

Hodgie said:
It was previously mentioned by some (including yourself) that the average investor would be better off just going in an index fund so I think for the purposes of the above comparison you would need to use index returns rather than that of CBA and CZZ.

I said the average person, is better off in an index fund than attempting trading, this example was to show a highly skilled investor using leverage, because a another forum member mentioned a skilled trader would always beat an investor. the example was to show that a relatively simple leveraged investment operation could achieve very high returns with almost a set and forget approach.

I don't personally use index funds, and have held positions in both the stocks I mentioned.

Value Collector · 12 February 2015

ThingyMajiggy said:
Might just be a technicality but a lot of those who are saying investing can take it to trading, always seem to refer to a trade that one could have taken X years ago, I think this is another advantage to trading, what if that trade 3 years ago didn't work, if CBA didn't double? What would you do now today if you had a trader vs investor challenge? With trading you get multiple chances a day to dig yourself out of a hole(if you get into one), don't have to wait weeks/months/years to find out what the result is before you pull the plug on it and look for something else. I think trading is better bang for buck, especially index futures like a few of us trade here, you know right now whether it's going to work and can then still make a considerable sum even if you start the day bad or whatever the case may be.

That being said I think it would be best to do a bit of both, none of this trading OR investing competition.

IMO

A skilled investor can find companies that are selling for less than they are worth, and building up value inside their company, these stocks a bound to go up in value eventually, its almost impossible for them not too.

I didn't just Cherry pick CBA and CZZ, these are both stocks I have had positions in (CBA was put option strategy). go to the CZZ thread and you will see I was posting about it's virtues and how undervalued it was for ages, to me it was clear as day, I bought so many shares I am in the 20 twenty shareholders list in both the 2013 and 2014 annual reports.

you can monitor the company along to the way to be sure value generation is still happening, you don't have to lock yourself into it, investors adjust positions too.

Hodgie · 12 February 2015

Value Collector said:
I said the average person, is better off in an index fund than attempting trading, this example was to show a highly skilled investor using leverage, because a another forum member mentioned a skilled trader would always beat an investor. the example was to show that a relatively simple leveraged investment operation could achieve very high returns with almost a set and forget approach.

I don't personally use index funds, and have held positions in both the stocks I mentioned.

Yeah I actually re-read skc post and saw that he brought up the suggestion of a skilled trader will beat a skilled investor. My bad.

pavilion103 · 12 February 2015

Value Collector said:
I said the average person, is better off in an index fund than attempting trading, this example was to show a highly skilled investor using leverage, because a another forum member mentioned a skilled trader would always beat an investor. the example was to show that a relatively simple leveraged investment operation could achieve very high returns with almost a set and forget approach.

I don't personally use index funds, and have held positions in both the stocks I mentioned.

Depends how many contracts you are trading also.

$25,000-$30,000 will allow roughly 4 on the FTSE.

A highly skilled trader could certainly make $200,000 in a year doing that.

That would blow the investor out of the water.

You also aren't relying on a handful of stocks to go up. You can trade the fitures index any direction also.

pavilion103 · 12 February 2015

That makes $113,000 over 3 years look like peanuts.

Value Collector · 12 February 2015

pavilion103 said:
Depends how many contracts you are trading also.

$25,000-$30,000 will allow roughly 4 on the FTSE.

A highly skilled trader could certainly make $200,000 in a year doing that.

That would blow the investor out of the water.

You also aren't relying on a handful of stocks to go up. You can trade the fitures index any direction also.

Is that what you made?

Because I actually held CZZ over that time, so the return is pretty close to the return I made, and I had a lot more that $20,000 in the deal.
_____

I said that is just one example though, of a very simple way an investor can leverage his returns, it could be improved with the addition of options etc, or with different stocks.

I wasn't trying to get into a measuring competition, just trying to show that a lot of the traders high returns will be because of leverage, so to compare it to an unleveraged return is not the right comparison.

pavilion103 · 12 February 2015

Value Collector said:
Is that what you made?

Because I actually held CZZ over that time, so the return is pretty close to the return I made, and I had a lot more that $20,000 in the deal.
_____

I said that is just one example though, of a very simple way an investor can leverage his returns, it could be improved with the addition of options etc, or with different stocks.

I wasn't trying to get into a measuring competition, just trying to show that a lot of the traders high returns will be because of leverage, so to compare it to an unleveraged return is not the right comparison.

It's not what I made.
And it doesn't matter that that's what you made (good job though and well done!).
You know that.

The point is that a skilled trader with a small account can easily beat a skilled investor with a small account.
A skilled investor can do very well, I don't dispute that.
But with the ability to make $200,000+ in a year from a $30,000 account -- that will not be beaten. No chance.
However, you and I both know that that sort of profit is very possible with a futures trading account trading 3-5 contracts.

IF you are a good trader with small capital you will win hands down certainly within a 12 month period.

Value Collector · 12 February 2015

pavilion103 said:
It's not what I made.
And it doesn't matter that that's what you made (good job though and well done!).
You know that.

The point is that a skilled trader with a small account can easily beat a skilled investor with a small account.
A skilled investor can do very well, I don't dispute that.
But with the ability to make $200,000+ in a year from a $30,000 account -- that will not be beaten. No chance.
However, you and I both know that that sort of profit is very possible with a futures trading account trading 3-5 contracts.

IF you are a good trader with small capital you will win hands down certainly within a 12 month period.

Do you know of anyone that has done that though? not just in one year, but consistently on average.

ThingyMajiggy · 12 February 2015

Value Collector said:
Do you know of anyone that has done that though? not just in one year, but consistently on average.

Yep! Although not a full 12 month period......as they usually go on holidays for a few months a year

craft · 12 February 2015

pavilion103 said:
But with the ability to make $200,000+ in a year from a $30,000 account -- that will not be beaten. No chance.

However, you and I both know that that sort of profit is very possible with a futures trading account trading 3-5 contracts.

5 Contracts = that’s north of half a million dollars of exposure on a 30K account - Wonder what ‘skilled’ traders are happy to operate with those odds of ruin?

pavilion103 · 12 February 2015

Value Collector said:
Do you know of anyone that has done that though? not just in one year, but consistently on average.

No. I don't know any traders or investors. I only know what is possible within reason.

Continue to follow my futures thread.

pavilion103 · 12 February 2015

craft said:
5 Contracts = that’s north of half a million dollars of exposure on a 30K account - Wonder what ‘skilled’ traders are happy to operate with those odds of ruin.

Manage risk such as: not holding overnight (or limited contracts). not holding during major announcements etc. As stated in another thread then you might have one shock in 5 years where price gaps. It won't be a large portion of capital overall.

Trade with an edge where losses are kept low relative to wins. E.g. max loss = 8 points per contract x 2 = 16 points on any one position. Most intial risk positions being 5-6 points risk. If 1 out of 7 (14%) make a 30 point win with all others losing the full intitial risk, you break even. Thats a 14% winning accuracy to BE!!!! Get that to around 40-50% and you are laughing. Not to mention the larger winners....

If you have $30,000, then start with 2 contracts (more than sufficient to make great money). As the account size increases then trade more contracts. OR if you want to manage risk further stay on 2 contracts making $2,000 or so per week.

I'm not sure where odds of ruin even comes into it operating in the above manner???
If trading with that sort of RR you aren't going to bust yourself.
If you break your rules repeatedly you might, but we are talking about a highly skilled trader who doesn't repeatedly break his rules.

pavilion103 · 12 February 2015

Stephen Covey in "The Seven Habits of Highly Effective People" (brilliant book) talks about "paradigms".

Craft, this appears to be a case of different paradigms. You cannot see what some of us others can see.

Value Collector... I agree with much of your stuff. Don't agree with all. But love your thoughts. Beneficial.

craft · 12 February 2015

pavilion103 said:
Stephen Covey in "The Seven Habits of Highly Effective People" (brilliant book) talks about "paradigms".

Craft, this appears to be a case of different paradigms. You cannot see what some of us others can see.

Perhaps I can not see what you can see.

Perhaps you have not seen what I have seen.

pavilion103 · 12 February 2015

Yes. I think I'll leave it at that.

I like what Tech started in this thread.

I guess we will see if further evidence mounts in the "Transition to Futures" thread.

BeanJumbler · 2 March 2015

There have been some disputes, but that's what's made this thread so educational. Thanks for the great thread, guys

pavilion103 said:
I don't get it.

There is no secret knowledge that is hidden from all except an elite few.

Anyone can do this.
Anyone can do it without Tech or anyone else.

Heck, the two books that I found most helpful to me were free PDFs.

Mind mentioning which PDFs these were?

pavilion103 · 2 March 2015

BeanJumbler said:
There have been some disputes, but that's what's made this thread so educational. Thanks for the great thread, guys

Mind mentioning which PDFs these were?

Some Wyckoff one from early 1900s. I'll have to dig it up.

And

Master The Markets - Tom Williams.
This one was gold when I first started.

Most who want to get rich or retire wealthy... have got it wrong

Hodgie

ThingyMajiggy

Newt

Value Collector

Have courage, and be kind.

Value Collector

Have courage, and be kind.

Hodgie

pavilion103

pavilion103

Value Collector

Have courage, and be kind.

pavilion103

Value Collector

Have courage, and be kind.

ThingyMajiggy

craft

pavilion103

pavilion103

pavilion103

craft

pavilion103

BeanJumbler

pavilion103

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